Privatization is a contentious issue, and when it comes to state-owned entities, it becomes even more complicated. The Pakistan International Airlines (PIA) is a prime example of such phenomena. The idea of privatizing PIA has been on the table for decades due to challenges faced by the airline, including financial losses, operational inefficiencies, and governance issue; with aviation experts suggesting in the prevailing scenario, PIACL ideally fits the diagnosis often termed as the “distressed state airline syndrome’. In an effort to rejuvenate PIA and enhance its performance in the cutthroat aviation sector, a number of governments have looked towards privatization for answers. Aviation gurus opine that privatization is essential for airlines’ survival and future growth, while there is a school of thought which believes that it may only lead to job losses, hike in cost of service for the end consumer and dent to national security and pride.
Privatization of a national flag carrier is not a new phenomenon; although initially, many countries around the world established state-owned airlines, especially in the early days of commercial aviation, for multiple reasons, which include the capital-intensive nature of the aviation industry, requiring significant investment in aircraft, infrastructure, skilled personnel and technology. Governments, with their ability to mobilize large financial resources, were often the only entities capable of making such investments, especially during the formative years of commercial aviation. Air travel was also deemed as strategically important for economic development, defense and national prestige. Similarly, in the 20th century, consideration of public service obligation and controlling the markets were few of the factors leading to overwhelming role of the governments in establishing and operating the airline business. However, well before the turn of the century, it became ever so clear that to sustain development, financial viability, competitiveness and increase efficiency of the airline, privatization is the name of the game.
The story of PIA is no different from other state-owned airlines. In today’s world, the core of decision making is based upon economic consideration and a bare perusal of financial record reflects the deteriorating balance sheet of PIA throughout the last decade. The airline’s liability has been estimated to be over PKR 700 billion, which is a significant burden on the national exchequer; with losses staggering up-to 7.1 Billion USD alone for a period of 2012 to 2022. However, the figure does-not fully depicts the performance of the organization over the years; which also includes rise in revenue and cut down in losses due to pro-active measures by the current CEO of the Airlines and his able-team. During the six months period ended June 30, 2023, the PIA generated a total revenue of PKR 120.27 billion with a gross profit of PKR11.25 billion as compared to revenue and a gross loss of PKR 71.19 billion and PKR 4.34 billion respectively in the corresponding period of 2022; witnessing a staggering increase of nearly 359% in the gross profit. However, be it may, the increase in the revenue, which is impressive given the post-pandemic environment, is in no manner sufficient to nullify the rise in the losses, which continues to drain the national ex-chequer. Without prejudice to the continued financial woes, the operations of the airlines have been plagued by flight delays and cancellations, low fleet number and maintenance of aircraft, and outdated technology.
Moreover, the circumstances in general have also not been kind for the aviation industry. The COVID-19 pandemic has severely impacted the aviation industry, with airlines around the world struggling to stay afloat. PIA has been no exception, with the airline facing a severe cash crunch and grounding several of its aircraft. Further to the same, the aftershocks of the fake degree fiasco have severely jolted the outlook and operations of the PIA, with gold-dust markets like EU banning the operations of the PIA. Privatization can provide PIA with the necessary financial support to weather the crisis and emerge stronger in the post-pandemic world.
It is vital to note that there is a large list of state-owned airlines which have been privatized, thus the privatization of PIA is not a matter of first instance in aviation world. The privatization of state-owned airlines has seen varying degrees of success; some have suffered difficulties, while others have achieved extraordinary success. The key lessons learned from these experiences underscore strategic planning, operational effectiveness, and stakeholder participation are critical in the efficacious shift from state to private control. The British Airways and Lufthansa are prime examples of successful transitions into profitable and respected carriers’ post-privatization. On the other hand, Aerolineas Argentinas (of Argentina) serves as a moderate reminder of the intricacies and potential for fiasco if the privatization process is not handled with diligence and foresight. The British Airways was privatized in 1987 through a public offering, transitioning from state ownership to private ownership. Post-Privatization, the British Airways went on to become one of the leading global airlines, known for its operational efficiency, customer service, and profitability. Likewise, Air France was partially privatized in 1999, with the French government reducing its stake in the airline. Though Air France faced challenges in the post-privatization period, the airline remains a important player in the global aviation industry. Similarly, Emirates was established as a government-owned airline in 1985 and gradually transitioned to a semi-privatized model with the government retaining a majority stake. Same is the case with Qantas was partially privatized in the 1990s, with the Australian government reducing its ownership stake in the airline. And whereas most recently Air India was privatized in 2022, and despite the post-privatization challenges, there has been an impressive surge in the revenue as well as the operational capabilities of the Airlines. These are just a few illustrations of state-owned airlines that have been either privatized or decided to retain majority shares by the state. It is generally professed that privatization can bring both benefits and challenges to an airline, including increased efficiency, access to capital markets, and greater competition.
Despite the abovesaid economic and operational consideration and the numerous precedents of successful privatization, the process of privatization is fairly intricate in nature and which requires meticulousness dealing with the legal as well has functional challenges to ensure the benefits of transaction. The course of privatization of PIA a minefield of legal and operative challenges and which the current government has carefully tried to maneuver through. It is pertinent to mention that through necessary amendments vide Pakistan International Airline Corporation (Conversion) (Amendment) Act, 2023, the Federal Government has bypassed the legal obstacles to smoothed the road to privatization. Further, to ensure transparency in the transaction, a Privatization Appellate Tribunal has been formed through ‘Privatization Commission Amendment Ordinance 2023’ which shall entertain and adjudicate upon any and all matters/challenges/objections to the process of privatization. The composition of the tribunal ensures greater expertise through appointment of experts judicial and technical members, with a retired judge of the Supreme Court chairing the Tribunal. The issue relating to the debts and liabilities of the PIACL accumulated over a period of time has been settled by means of parking the same through formation of separate holding company, however such arrangement shall eventually burden the national exchequer as the re-payment of such debt shall be borne by the taxpayer.
Furthermore, a fierce legal and human resource challenge for the government would be to protect the interest and secure the rights of the employees of the PIACL in the post-privatization world. PIA has over 14,000 employees, and any privatization scheme would have to address their concerns and to ensure that they are not thrown off the bus by means of retrenchments and/or blanket terminations. A mechanism needs to be put in place to ensure compliance of labour laws and job security of the employees of the PIA. Similarly, challenges relating to regulatory compliance and competitive nature post pandemic aviation industry are few of the considerations requiring careful consideration.
The privatization of PIA is a momentous moment, not just for the national flag carrier but for the overall narrative of Pakistan’s economic reform and integration into the global marketplace. It is a chance for reinvention and resurgence, which, if executed with strategic precision, could set an example for the successful renovation of national carriers around the world. However, the government needs to ensure that the privatization process is transparent, fair, and does not compromise safety standards. The interests of PIA’s employees must also be protected, and they should be offered suitable severance packages and job opportunities. More than just a name ownership, the privatization of PIA represents a larger ideological shift towards market-driven economies and the conviction that the private sector is duly competent to revitalize airline that has remained state controlled since its inception.